Buy-to-Let Mortgages

You need a special mortgage to let a property

In a Nutshell...

• If you're buying a property to let, it's best to get a proper buy-to-let mortgage.
• Flexible, discounted, fixed, self-certification and tracker mortgages are all available as buy-to-let products.
• The required deposit is higher on a buy-to-let product, and the minimum is generally 15%.
• Fees and interest rates are generally higher than for conventional residential mortgages.
• Lenders often stipulate that the achievable rent be between 100% and 150%, generally 130%, of the monthly mortgage repayments.

What is it?

Buy-to-let has seen considerable growth over the last few years. However, buying and subsequently letting a property is against the rules of most conventional mortgages. The result is that many people thinking of this take out buy-to-let mortgages. Luckily, buy-to-let products have become more readily available over the last few years, and most of the conventional types of mortgage such as flexible, discounted, fixed, self-certification and tracker are also available in buy-to-let form.

In most ways a buy-to-let mortgage is the same as a residential mortgage. The main difference is that instead of taking your income as the basis of how much they're willing to lend, they use the monthly rent the property will achieve. This rent needs to cover the mortgage at least, and some times more. While a rent which is 130% of the mortgage repayments is generally seen as standard, this coverage can go up to 150%. The rent achievable is estimated by an independent party, often a surveyor, and the coverage is required to cover the running costs such as insurance, repairs and any periods when the property is unlet.

Although the potential loan is not based on your income, first-time buyers may have to prove a minimum income to show demonstrate they can cover the monthly repayments if anything should go wrong. For more experienced landlords with multiple properties, this may not be required.

Costs and charges

For standard buy-to-lets, the maximum you can borrow is 85% of the purchase price. The interest rates on buy-to-let are generally more than for residential mortgages. Arrangement fees can also be higher, as can early redemption penalties. It is a good idea to inform your accountant of your plans to get a buy-to-let mortgage, as they can make preparations to minimise the effects of tax.

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